THE EFFECT OF MANUFACTURING EXPORTS ON ECONOMIC GROWTH IN NIGERIA (1970-2015)

THE EFFECT OF MANUFACTURING EXPORTS ON ECONOMIC GROWTH IN NIGERIA (1970-2015)

ABSTRACT: This study examined the effect of manufacturing exports on economic growth of Nigeria over
the period of 1970 to 2015. A number of literatures were reviewed to back up the claim that
MEX has a positive effect on the growth of the economy. The study also examines the
relevance of agriculture sector to the productivity of the manufacturing sector. Suggestions
were raised that the agriculture sector can complement the manufacturing sector, which on
the long run will foster the growth of the nation. In evaluating the objectives, the study
employed the Autoregressive Distributed Lag (ARDL) model and discovered that within the
period under review that MEX affected economic growth positively. This will economically
increase the level of industrial development. The manufacturing sector has been said to have
the greatest potential to employ more labour and with increased employment, more
productive output will be produced, hence an increase in economic growth. Therefore, the
government and policy makers are encouraged to pursue an export-oriented industrialization
with the needed infrastructures in place both financial and social, so that the intended impact
on the manufacturing sector can be visible and in turn reflect on the economic growth.

CHAPTER ONE

• INTRODUCTION
  • BACKGROUND TO THE STUDY

Nigeria is located in West Africa having a land mass of 923,768 square kilometers. It,however, shares boundaries with some countries; it borders with Benin in the west, Chad andCameroon in the east, and Niger in the north and to the south lies on the Gulf of Guinea in theAtlantic Ocean. Nigeria is often referred to as the Giant of Africa, which is attributed to itslarge population and economy. Africa‟s most populous country (Nigeria) having an estimateof over 180million people with over 500 ethnic groups with different languages (Zulu, 2009).

Nigeria is a country blessed with abundant resources ranging from its population size, land mass, human and natural resources potentials, crude oil, mineral resources, having the most fertile soil on the continent, favourable climates to mention a few. Demographically, the 2006 census carried out in the thirty-six states of Nigeria showed us that out of the six geo-political zones: North-West was the most populous zone in the country. Kano state has the highest population of 9,401,288 followed by Lagos 9,113,605, Kaduna, Katsina, Oyo, and Rivers are the four states having the population of more than five millions (NPC, 2016).

The Nigerian economy, however, has gone through some stages of development in relation to its trade and commercial activities. The pre-colonial era of Nigeria can be looked as far back as 19th century up to the World War 1 where the people engaged in different economic activities such as agriculture, fishing, hunting, crafts, and pastoralism among others. The dominant sector of the pre-colonial Nigeria was the agricultural sector, which was mainly subsistence with the use of simple technology. The production of farm produce was to ensure human existence with no or minimal level of exchange with another due to limited output.

The kingdoms and the people were thriving because of the presence of natural resources coupled with the human resources present such as agriculture, trading, crafts, etc. The structure of the economy as at the pre-colonial era was determined basically on the nature of vegetation, labour and the vital components of the economy being the commercial activities among traders, crafts, agricultural activities, communication, and transport system. The major determinant of what to plant, where to settle and what type of trade to embark on was basically based on favourable climate, fertile land, a favourable environment for fishing, closeness to market, security, and epidemic free environment, that is, ecological factors play
an important role in determining settlement decisions (Ehimore, 2009). Ehimore (2009) opined, “The form of agriculture practiced and the crops planted were
determined by the nature of soil and the terrain of the region. Shifting cultivation and croprotation characterized agricultural practices in pre-colonial Nigeria, owing primarily to landtenure practice and lack of knowledge of highly mechanized farming”. The type of farm toolsused were crude such as digging stick, hoe, axe, bamboo baskets, cutlass and sickles, due tolack of knowledge of using mechanized implements (Fasinmirin and Braga, 2009).

Fishing is also one of the oldest economic activities in Nigeria. It could be traced back to the pre-colonial period where it is one of the key commodities of trade. There are varieties of fish being drawn from the seas and different preservative measures were used for them due to their perishable nature. People took fishing as profession, which requires special skills such as being able to swim, to rowboat, the construction of the net and other fishing techniques (Ehimore, 2009). This type of economic activity brings about migration from one place to another because fishing requires moving towards the riverside or seaside. Hunting is also one of the prominent occupations in the pre-colonial era because it was a means of survival depended on by many people. In contemporary Nigeria, hunting is being considered as a significant complement with agriculture with their end means being
entwined. This type of economic activity also served as a dependable source of meat andanimals skin for production of clothes, shoes, drum making, and wool (Ehimore, 2009).

Nigerians being talented in the work of arts or any handwork can be mapped out as far back as the pre-colonial period of Nigeria. The prominent among the crafts and arts in this era included weaving activities, woodwork, the carving of canoes used for fishing, the distilling of alcoholic drinks, soap production, and metalwork among others. It is apparent that crafts and arts are being progressed into manufacturing and entrepreneurship, which are vital factors in the development of an economy. Trade by barter was one of the earliest methods and most common way of exchanging products in the pre-colonial Nigeria. This method of payment were used before the advent of various forms of payment system in which the commodity money was most used in this period such as cowries (owo-eyo used in SouthWestern Nigeria), manila (Okpoho used in South-Eastern Nigeria), brass, iron, coins among
others. The development of payments system made transaction in the market an easier task.

The mode of transportation has been developed overtime from the use of land, seas, or rivers. The pre-colonial Nigerian economy was experiencing economic growth and responsive to innovation before colonization by Britain in the late 19th century (Ehimore, 2009). The European countries perpetuated the underdevelopment of African countries, Nigeria included. Nwanosike and Onyije (2011) “Colonialism arose out of the need for European nations to have direct political control over their colonies so as to ensure the protection of their economic interest”. Nigeria was a colonized country under the British rule in the 19th
and 20th centuries. The colonial era in Nigeria lasted from 1900 to 1960. The Nigerian economy suffered a major setback with the advent of the colonial masters through the exploitation of both human and natural resources and cheap raw material supplies, to contribute to the sustenance of the British Empire (Nwanosike and Onyije, 2011). Ebitu (2016) stated, “In the 19th century colonialism was actually a way of life for the developed countries in Europe to superintend over African states, cities, and kingdoms”. At the early period of the colonial era, the concern of the colonial authorities was the provision of basic infrastructure and services in the country, which will help in the location and transfer of raw materials to Britain. By exporting the resources owned by Africans to Europe, the development of Europe was imminent.

Walter (1973) stated, “Western Europe and Africa had a relationship, which ensured the transfer of wealth from Africa to Europe. International trade was nothing but the extension overseas of European interests. The strategy behind international trade and the production that supported it was firmly in European hands, and specifically, in the hands of the sea-going nations from the North Sea to the Mediterranean”. The colonial masters had a perfect knowledge about how the international exchange system works as a whole. The foreign trade was more in favour of the colonial masters, which made Africa countries, Nigeria included, dependent on their masters (Walter, 1973). During the pre-colonial era, the country retained
the dominance of social, political power, and economic trade among the citizens of the country compared to the disadvantaged nature of exploitation of power and one-sided trade relationship with the British Empire. The period of colonialism reduced the image built by Nigerians to state of nothingness despite that their lives were much better before than the emergence of the Britain (Nwanosike and Onyije, 2011). Colonialism comes with many hindrances, which has more bad sides than the good side; the main benefit that can be attributed to this era is civilization (the abolition of killing of twins, the introduction of formal educational institution, equal rights between men and women and religion) while the hindrance is more of economic dependent and slave trading. One of the benefits of the British
emergence to Nigeria were trade opportunities that made the country have access to external trade around the world which expose them to other ways of trading rather than the subsistence and limited production which reigned in the pre-colonial period, although the dealings was in favour of the former than the latter.
The agriculture sector had been the mainstay of the Nigerian economy from the pre-colonial to the early decade of the post-independence. The post-independence period of Nigeria made her citizens witnessed two unique economic periods characterized by agricultural production and crude oil exploration. A decade after the independence of Nigeria, the country witnessed an intensified demand for its crude oil resources in commercial quantities (Akpan, 2012). Nigeria being agrarian based economy was vast in the production of cocoa, timber, beans, hides and skins, rubber, groundnuts, palm kernel and much more. In the 1960s‟, the economy
were comprised with many primary economic activities with rudimentary method of
operation that were important in sustaining the entire Nigerian economic system. Post-independence period deemed Nigeria fit as more of a net exporter of agricultural products more than an import-oriented as she is recently. More of these products were being were traded with other countries of the world mostly in their primary form; this knowledge of external trade being part of the benefits of the colonial period helped to generate enough revenue for the country which was not in practiced prior to the colonial period. Agriculture served as the major source of raw materials for industries, export earnings, and government revenue in the 1960s‟, contributing more than 60 percent of the nation‟s Gross Domestic Product (GDP) (Alamu, 1981). Akpan (2012) observed; “The agriculture sector employs about two-thirds of the country‟s total labour force and provides a livelihood for about 90 per
cent of the rural population”. According to the proposal of NCEMA “In 1969 the oil sector accounted for less than 3 percent of GDP and a modest US$370 million in exports (42 percent of total exports); per capita income was only US$130; and more than half of GDP was generated in the agricultural sector”.
The discovery of oil in commercial quantities in the mid-1950s and the exploration in commercial quantities in the late 1950s‟, coupled with the oil-boom in the 1970s‟ resulting from the crisis that happened to the major oil suppliers in the Middle East, affected the agricultural sector adversely. This period of oil boom caused the negligence of the agricultural sector and decline in its exports as its been discussed among several authors as Ammani (2011) begs to differ by proving that agriculture sector was not neglected as a result of the oil boom but the period was just in coincidence with decline in the agricultural sector. With the decline in the production of food, this development of being an oil supplier as nation turned the economy to a net importer of basic foodstuffs gulping huge foreign exchange earnings in the importation. This led to the inflation in the price of foodstuffs.
Nonetheless, the Nigerian government had to invest substantially in the development of the agriculture sector through policies and creation of boards for a variety of agricultural processes and food products such as: the establishment of the Nigerian Agricultural Bank in 1973, Integrated Agricultural Development Projects (ADPs), World Bank assisted in 1974; Operation Feed the Nation in 1976, Live-stock Development Programme (LDP) in 1981, Rural Agro-Industrial Scheme (RAIS) in 1981, and a subsidy of about 75 percent on fertilizer (1977-83) to mention a few (Ammani, 2011). Despite the number of programmes and policies laid down to resuscitate the agriculture sector, the deterioration of food products
could not be reversed.

The oil boom period marked the beginning of supply of crude oil that led to the massive inflow of financial resources as revenue to the Nigerian government. However, the economy was progressively dominated by the oil sector accruing more than 80 percent of foreign exchange earnings. Because of this positive development, the economy witnessed a higher economic growth and the government invested in some industrial and manufacturing activities, which include petroleum refineries, petrochemical processing, basic steel production, Fertilizer Company among others. However, the effect of this period generated
an insignificant result because the emphasis of the economy was on products where the economic comparative advantage of the country was low. As opposed the theory of Ricardo‟s comparative advantage that advises a country to dwell in the production and exportation of product it produces at a lower opportunity cost. This era also had its own setbacks. The encouragement of imports over exports that led to balance of payment deficit, the consumption of what she was not producing, political instability, price instability, unemployment rate increased due to structural change in the economy, and corruption was the order of the day, looting of government treasury accounts, the increase in inequality between the rich and poor. Notwithstanding the positive development of the oil boom era, the private sector remained weak. By 1978, a country that had thought that foreign exchange was
not a limitation to growth had to borrow externally to fund its expenditures due to deficit in the budget. Therefore, the economy was plunged into recession, necessitating supplementary stabilization measures to reverse the depressed situation.
The 1980s oil glut was as a result of serious surplus of crude oil caused by falling demand following the 1970s energy crisis. The period of oil glut was characterized by the excess supply of oil that led to the crash in the world oil market generating an economic wide shock since oil has turned to the main sector of the economy generating enough revenue for the government. The glut started in the late 1970s and early 1980s because of slowed economic activity in industrial countries due to the crises of the 1970s, particularly in 1973 and 1979. It could also be attributable to the discovery of oil by more countries, for instance, Norway. After 1980, the demand for oil reduced and the production increased which led to a glut on the world oil market due to countries sourcing of alternatives for energy: as energy could be generated from charcoal, nuclear power, natural gas, and other sources. The Organization of Petroleum Exporting Countries (OPEC) had seen its share of the world market drop to less than a third in 1985, from about half during the 1970s that caused conflict of opinions on how to retain their high prices. During this period, OPEC members could not agree on the amount of quota each member country should supply, so each country supplies as much as it pleases as some production quotas were supposed to be met to maintain price stability. As a result of
this excess supply, oil prices fell to as low as $7 per barrel. The crash in the world oil market lasted six years that was benefitted by oil-consuming countries such as Japan, Europe, the United States, and others. Nevertheless, this development was a serious loss of revenue for the oil producing nations in the world.
Different policies and programmes were put in place to prevent leakages in the economy and to put the economy back in track of sustainable growth and equilibrium such as Structural Adjustment Programme (SAP). It was in implemented during the regime of General Babangida in 1986. The main goal of this programme was to recover the shock of oil glut. Two mechanisms were used by SAP, which were exchange rate devaluation and trade liberalization. This programme was put in place to liberalize the economy and relieve the country on being a monoculture economy by diversifying it. It planned to use the private sector as the engine of growth of the economy by encouraging Small and Medium scale Enterprises (SMEs), commercialization and privatization of government-owned enterprises. With the use of SAP, a number of export-oriented strategies were formulated with the
expectations that there will an increase in the use of local raw materials and intermediate inputs to promote export-oriented industries, stimulate competition and enhance efficiency and encourage the development of local technology. Although, there was an increase in the performance of the industrial sector but does not assume the dominant position expected of it because the share of manufacturing export as a percentage of total exports was less than 1 percent up to 2000. In contemporary Nigeria, with reference to the structure of the industrial sector, it is still
being dominated by small-scale enterprise. Liberalization, privatization of some sensitive sectors of the economy, commitment to deregulation, the withdrawal of government from direct production of goods and services is considered the strongest in this period. Since the country has changed to a democratic way of governance from 1993 until today, there has been a significant progress in the liberalization of the sector. However, the industrial sector is still considered being weak.

• STATEMENT OF THE PROBLEM

In the contemporary world, the core goal of every society of the world is to achieve a sustainable growth. However, there are different strategies used by different countries in achieving this goal depending on the available resources in the country (Devi, 2014). These strategies have their unique ways of promoting the economic growth of countries but the role of industrialization is very germane to the promotion of growth. One of the most effective tools used by economies of the world for growth and development is through the exportation of manufactured products. Exportation of products is an essential catalyst for the development of an economy as a whole (Abou-Strait, 2005). It is a known fact that manufacturing exports persist to be one of the most sensitive tools used in stimulating economic growth. It acts as a catalyst to transform the economic structure of countries, from simple, slow growing, and low-value activities to more productive activities that enjoy greater margins driven by technology and having higher growth prospects. It can aid the
agricultural sector to be more productive in making use of mechanized farm implements withtechnological advances and an improvement in the formation human capital (Albaledjo,2003). Export trade has been acting as a facilitator of growth as it contributes to theoptimization of resources within countries and it aids in transmitting growth from one part ofthe world to another. In the present day, exchange between countries has been an avenue forthe growth of economies around the world and there is almost no country that has a longtrend of sustainable growth without having a higher export growth.

A country will have comparative advantage in the production of a good over another country if it can produce the good at a relative lower opportunity cost than another country, that is, a country should specialize in the production of goods in which they produce efficiently using fewer resources (David Ricardo, 1817). This theory explains the behaviour of most countries of the world in the international market, they tend to produce goods they use fewer resources on producing and import those goods they have comparative disadvantage on. As a whole, the Africa economies is largely dominated by the exportation of primary commodities that
are susceptible to fluctuations in their prices, terms of trade, climatic factors and world demand (Amakom, 2012). The level of globalization in the world is on the rising, therefore the countries of the world are seeking for growth in utilizing what they have and seek outside what they do not have in achieving the level of growth they so desire. The advantages that could be attributed to open economies in Sub-Sahara with particular emphasis on Nigeria has not been achieved up to the optimum point because of the export of primary commodities and
the overdependence on crude oil as the major of source of revenue (Amakom, 2012).
The Asian tigers (Hong-Hong, Singapore, South Korea, Taiwan), are developing strategies towards achieving growth through export-oriented economic policies; these countries are switching to the manufacturing sector because it is the sector that has the potential of increasing the growth of the economy (Söderbom and Teal, 2002). Amakom (2012) “Evidence has shown that rapid export growth provided the foundation for industrialization in East and Southeast Asia. In Indonesia, Malaysia, and Thailand, while primary exports played a prominent role in the 1960s and 1970s, the share of manufactured exports in total exports rose from 6 percent in 1965 to 41 percent, 61 percent, and 77 percent respectively in 1992 but
in SSA, the manufacturing share of exports was 7 percent in 1965 and 8 percent in 1990”.
The process of manufacturing involves value added provision, that is, more value is being added to the product as it moves down the production process, this means that the more the product gets to the final stage of production, the more the revenue to be generated from it. In contrast to Nigeria‟s case, we tend to export raw products instead of finished products, which is the reason the revenue generated on manufactured exports is so low in comparison to other developed countries. The problem of exporting raw products instead of finished manufactured products provides some ground for Prebisch-Singer hypothesis, which argues that the price of primary commodities declines relative to the price of manufactured goods
over the long term, which causes the terms of trade of primary-product-based economies to decline. The primary products have a lower price elasticity of demand, therefore, their prices tend to reduce revenue for the economy rather than increase it. Most Africa economies are very unstable due to their dependence on primary goods like oil and agricultural products. Economic growth has often occur at the same time with boom in oil prices but on the long run, primary goods exports face declining terms of trade due to their low value added to manufactured goods. Contemporary arguments suggest that African economies need to
export manufactured products because of the size of their domestic market; although their market size is not as big as that of China or India, hence the fastest possible way to industrialize is through exports. The dominance of oil as the major exports is not a healthy one for the country, as it shaded the country in focusing on other non-oil exports, considering the volatility and instability of oil prices at the international markets. In contemporary Nigeria, oil exports account for over 90 percent of the country‟s total revenue generation. It is equally unhealthy to observe that
not only was non-oil export declining, but also, the share of manufacturing sector also declined consistently in the same period. The share of manufacturing sector in total export declined from 3.1 percent in 1970 to 0.75 percent in 2012. (Arawomo, 2014). Over the years, the export of manufactured products has ascertained to be a key strategy in the improvement of export level and economic growth of many countries as well, taking the Asian tigers as an example. Earlier studies have contributed to the strategies with which the Nigeria‟s export sector could be stimulated and most of their works have mentioned about the decline in the growth of export of the economy due to the export of primary commodities and the overdependence on crude oil (Amakom, 2012; Arawomo, 2014, et al.). The purpose of this project or the research gap of this study is to laud the contribution of agriculture to the share or the promotion of manufactured exports. The usefulness of agriculture in stimulating the economy cannot be overemphasized since the country has a potential cost advantage – labour intensive. It will enable local firms to harness the abundance of the agriculture sector with the use of a more labour-intensive technology. The use of agriculture as a complement to the manufacturing sector can be a starting point to economic growth of the country.

• OBJECTIVES OF THE STUDY

The broad objective of this study is to examine the effect of manufacturing exports (MEX) on the economic growth of Nigeria. The specific objectives are to:

1. determine trend and pattern of MEX and gross domestic product (GDP) inNigeria;
2. assess the determinants of GDP in Nigeria;
3. Examine the relationship between MEX and economic growth in Nigeria.

• JUSTIFICATION FOR THE STUDY

This study highlights the contribution of manufacturing exports (MEX) on the growth of the Nigerian economy over the years. The main reason for this study is that, researchers are yet to pay sufficient attention to the complementarity of agriculture to the development of the manufacturing exports. Therefore, identifying this gives the country an edge in knowing the ways through which sustainable growth can be achieved and helps provide information to policymakers to enable them come up with the appropriate policies regarding the growth of the sector and the economy as a whole. This research study serves as a reliable source of information to various categories of students as well as researchers wishing to carry out further research in this area. It also serves as a guide for the government authorities to identify where policies can be made in order to foster the growth of the economy. The findings of this research study are vital for achieving economic growth in Nigeria. Despite export is perceptible as the key success in attaining economic growth.

• EXPECTED CONTRIBUTION TO KNOWLEDGE

The Nigerian economy has had a tardy economic growth despite the richness of its resources in both human and natural. This study is expected to add to previous knowledge as it analyses how the contribution of agriculture helps in the promotion of manufactured exports; critical examination will be made on how agriculture can also be relevant to the manufactured product.

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